Software as a Service In Asia 2007

Software as a Service (SaaS) has been one of the IT industry�s hottest buzzwords over the past several years, and for good reason. The success of firms such as Salesforce.com, Web Ex and RightNow Technologies has shown the power of the ondemand software delivery model. Cost benefits, ease of implementation and management, and better coordination across branch offices have been key drivers for the early success of SaaS vendors. Although some high-level research has been conducted at the global level, very little information exists on the Asia Pacific SaaS marketplace.
This report addresses the lack of coverage by examining the key trends in the Asia Pacific Enterprise SaaS market. A key focus area of this executive overview is in providing some topline market data including market size and growth forecasts for key application segments of the enterprise SaaS market in Asia Pacific excluding Japan.
A survey of 210 CIOs and IT decision-makers at small and medium enterprises in Australia, China, India, Korea, Malaysia, the Philippines and Singapore helps to contribute to this executive overview. The publisher additionally has a more extensive report available that will provide country level detail, the full results of the survey, along with detailed market sizing of specific application segments.

Executive summary
Our review of the Asian SaaS market revealed a particularly dynamic, promising and exciting corner of the IT market. Many segments of the market are doubling in size every year, and the pace of strategic experimentation is astounding. Most vendors are approaching the market in a different way, viewing it through a lens that can help them benefit from this new market dynamic to the largest extent possible.
Young SaaS-founded companies are moving at a fast and furious pace to stake their claim, as traditional IT firms delve into the SaaS landscape more cautiously. Regardless of the approach, all vendors we encountered have a healthy dose of respect for the power and force of the SaaS dynamic, and its ability to reshape their fortunes in the long term.

The five key findings from this research study are provided below:
1. The SaaS Market is Here to Stay: Unlike many hot IT industry buzzwords that come and go, all evidence we gathered points to the long term staying power of the SaaS model. Early adopters report significant savings and high satisfaction, vendors are investing heavily, and ecosystems to support SaaS growth are taking shape quickly. We do not believe SaaS will replace the traditional software license model any time soon and we envision an environment where both models coexist; however, SaaS will eat into the share of the traditional model and the traditional software license approach will need to adapt.
2. SaaS is not Just for Asia�s Small and Medium-sized Businesses: Although adoption levels for SaaS will be greater in the SMB market sector, vendors indicated there is activity in the large enterprise sector as well, and that upper mid-market and large businesses represent some of their largest and most important clients. Large enterprises are far less likely to leverage the SaaS model for core applications such as ERP, but for applications deemed less missioncritical and those on the edge of their infrastructures, SaaS is receiving considerable interest.
3. Competitive Frameworks in the Enterprise Application Industry will be Reshaped by SaaS: Traditional enterprise application vendors are already adjusting their offerings to address the SaaS dynamic, and new formidable competitors are emerging at a rapid pace. In many ways, SaaS � enabled by its ease of implementation, maintenance and support � levels the playing field and allows vendors to compete more effectively across borders based on the merit and ease of use of their applications.
4. SaaS is in the Process of Branching out of the Core CRM Segment to other Application Markets: CRM has been the pioneer and largest segment of the SaaS market, but a myriad of other markets are now gearing up for a SaaS push. Two segments in particular that we believe are on the threshold of strong SaaS advances over the next several years are Security and Collaboration; however, the spread of the SaaS dynamic can be expected far and wide in the years to come.
5. A SaaS Channel and Ecosystem is Emerging in Asia Rapidly, but it is Marked by Experimentation and Fear: The race is on as traditional software firms and SaaS vendors are working hard to develop extended regional networks of resellers, system integrators (SIs) and developers. Experimentation has been common with several tieups between software vendors and telecommunication firms and the rollout of innovative referral models. However, traditional SIs are weary of embracing the models too firmly out of fear that it could cannibalize their existing sources of profit.

In addition to these key findings, other prominent study results are outlined below:
- The Asia Pacific SaaS enterprise applications market amounted to US$80 million in 2005, and generated 82% revenue growth over the previous year. The market is projected to grow at a CAGR of 84% from 2005 to 2008.
- CRM is the largest SaaS application segment in the region, representing 50% of total SaaS revenue in 2005. CRM is trailed by Web Conferencing and Collaboration (30%) and back-office applications such as ERP (9%).
- Australia is the largest regional SaaS market with a 36% share of 2005 Asia Pacific revenues. China/Hong Kong (16%) and Korea (10%) are the next largest regional SaaS markets.
- Salesforce.com leads the regional SaaS market with a 21% revenue market share. WebEx (11%), RightNow Technologies (9%), Oracle (6%) and NetSuite (4%) follow the market leader.
- Based on a survey of Asian Small and Medium-sized enterprises, 41% were aware of the SaaS concept. Only 29% of SMEs surveyed had reported adopting SaaS; however, many likely did not fall into Springboard�s official SaaS definition, which would lower this figure.
- The primary factor driving SMEs to adopt SaaS applications is cost benefit (33%), followed by ease of use and business benefits.
- Of the surveyed SMEs that had adopted SaaS, they reported savings ranging from 5-55% compared to the traditional licensed model, with the majority (58%) reporting estimated savings of between 20-30%.
- The primary factor preventing SMEs from adopting SaaS is the perception that it is more expensive than licensed software. The next most important inhibitors are a lack of SaaS understanding and security concerns.
- Among SMEs that had not adopted SaaS, 25% indicated plans to do so within the next 12 months. The primary application being planned is CRM, followed by web collaboration, security and HR applications.

TAXONOMY
What is Software as a Service (SaaS)?
Defining SaaS is a tricky issue, in part because different stakeholders in the SaaS market want to define it in the way it suits them. In spite of these challenges, Springboard Research defines Software as a Service (SaaS) as a model in which application software is delivered remotely through a subscription-based fee rather than being sold for perpetual use. The users do not buy the license of the software, but only a right to use it. A user may subscribe to all the features / functionalities or just some of them for use. We have also referred to the model as On-Demand Software and On-Demand Application.
The key characteristics of SaaS are:
- The software application is not owned by the customer, and is only rented for use.
- The software resides at a central server and not on customers� machines. The user accesses the application through a web browser. The SaaS provider is responsible for the performance of the software.
- The primary value delivered is the continuous and ongoing support for the application by the service provider. Network based access allows maintenance, support and upgrades to the software from the data center. The SaaS provider is responsible for the maintenance and upgrade of the software.
- The architecture of the application, management thereof and the pricing mimic the one-to-many model rather than the one-to-one model.

Enterprise Software Applications delivered as SaaS include business applications such as customer relationship management (CRM), web conferencing and collaboration applications, HR applications like talent management and payroll, enterprise resource management applications like ERP, supply chain management (SCM), product lifecycle management (PLM) and so on.
This report excludes software applications or services aimed mainly at the consumer market. It is true that online companies like Yahoo and Google also deliver software as a service; however, we have excluded them for two reasons: a.) those services are mostly used by consumers, which is a distinct market with unique characteristics and, b.) their revenue is not exclusively derived from selling software services but often provided for free or subsidized by advertising.
We have also excluded the business of application hosting from the scope of this report as the model does not meet our definition of SaaS.
In the application hosting model, the customer has to pay for the software license. The customer therefore owns the software application and is responsible for upgrades and maintenance.

Who is a SaaS Provider?
A SaaS Provider is any company that delivers SaaS over the Internet and is accountable for the software maintenance, upgrade and associated services. The SaaS Provider is responsible for hosting, deploying, customizing, configuring and delivering the service.